THE present sketch of
banking in Scotland may be fitly concluded with a short consideration of
some of the leading features of the system which has made Scottish
banking conspicuous among the banking systems of the world. Perhaps the
chief of these is its suitability to the circumstances of the country
and the genius of the nation. This may almost seem a truism, in as far
as the system was of almost entirely natural growth. But this is in
itself a circumstance quite unusual in other countries. Elsewhere the
State has been the motive power in calling banking into existence, has
moulded its character, and has regulated its action all along. In
Scotland the State took little interest in the matter beyond sanctioning
the formation of a few of the earliest establishments. The consequence
was a naturally-evolved system, moulded by the requirements of the
people.

The nation was extremely
poor, with a debased and insufficient currency. Even the small amount of
capital at first put into the business was a great boon to the people,
but it was the note-issues, founded on the credit of the banks, that
actually gave the impulse to trade. The small amount of actual capital
available would, by itself, have given only temporary assistance; but,
by means of the note-issues, the banks were enabled to extend their
advances in proportion to the wants of the people. This, it may be
thought, would lead to excess of issues; but it does not appear that
such a condition was ever experienced in Scotland. It is doubtful,
indeed, if it be actually possible, where notes are not legal tender and
are payable on demand. The banks had no desire and little temptation to
grant advances which they did not believe to be good, as there was a
great field of legitimate requirements before them. The notes so issued
would at first not come back to the banks, except as worn, for there was
a great vacuum of currency to be filled. Thus the profitableness and
safety of early banking in Scotland are fully accounted for. The
note-issues fulfilled the functions of capital, the absence of which was
crippling the nation, and did so in a cheap and convenient form.

As the nation advanced in
wealth, the note-issues began to lose somewhat of their indispensable
character. A wealthy country can afford to indulge in a metallic
currency. But, even when they might have discarded the notes, the
Scottish people continued to use them as much as ever. And it was well
that they did so; for, as the original function of the notes was losing
somewhat of its force, a new necessity for the issues was arising. The
banks were extending their branches more and more into the rural
districts—an operation which could only be performed through the aid of
the note-issues; for it it is only in comparatively wealthy centres that
a bank office can be successfully conducted on a metallic basis. From a
public point of view this is at present the great argument in favour of
the retention by the banks of their right of issue ; and it is a very
powerful one. The cost to Scotland of the abolition of these issues
would be a more expensive currency, lessened banking facilities, and
probably, heavier banking charges. If the note-issues had proved
defective, this would not, perhaps, be too heavy a price to pay for
security; but it seems too much to pay for the destruction of an
institution which has been a vital instrument in producing the
prosperity of the nation, which has never been productive of harm, which
has always been thoroughly efficient, and which at the present time is a
convenience to millions of people.

The cash credit system is
another important feature of Scottish banking; but it is secondary to
the note-issues. Cash credit bonds extended the range of good advances;
but advances of any kind would have been impossible, except to a small
extent, without the note-issues. But, as a part of the system, the cash
credit was not only ingenious, but was a potent factor in the commercial
progress of the nation. It secured the debt on which the notes were
issued, and it enabled clever and industrious men, who had no capital of
their own, to supply the requirements of the public, and to lay the
foundations of individual and national wealth.

The deposit business was
of slower growth than the departments we have referred to, for the
simple reason that poor people have no money to deposit. But the Scotch
have always been a saving people, and, when once they began to have a
little more cash than was necessary for current requirements, they
naturally availed themselves of the opportunity afforded by the banks of
making it profitable to themselves and useful to others. As the banks
have always given liberal facilities in this department, the spirit of
saving was much encouraged, to the general benefit.

The widespread character
of Scottish banking has been a great source of stability to it. In other
countries the general practice is that banks confine themselves to
particular localities, or even to particular departments of commerce.
Under such a system risks are not sufficiently spread, and a bank stands
or falls according to the fortunes of a small clientelle. In Scotland,
also, this system was general for long, and it is only in comparatively
recent times that it has entirely disappeared. But with the gradual
consolidation, which is so marked a feature of its history, Scottish
banking sought more and more a national basis. This it has now attained
to, for there are no banks confining their operations within very
limited areas. The provincial banks may be deemed a partial exception,
but even they are fairly widespread. The banks have thus a strength and
solidity such as is not general in other countries. In the United
States, for instance, so-called national banks are to be found in every
town, but their nationality consists in nothing more than the securing
of their note-issues by a deposit of Government bonds. Every month a
long list of new banks appears, and along with it a similar list of
failures. These banks seem to be mere associations of small capitalists
establishing themselves as single offices—a system of essential
instability. Even in England the number of small local banks is great,
although much lessened by the numerous amalgamations which have taken
place during recent years.

But, if Scottish banking
has now secured what, as regards its principles, may be considered an
ideal condition, it has not done so without suffering in many severe
struggles. The Legislature wisely left it to itself—or rather the
indifference of the Government allowed it to fight for its own
existence; but, if it suffered nothing from the attentions of the State,
it had, on the other hand, to devise its own principles and form its own
practice—operations of great difficulty and danger. It had to meet
crises without proper knowledge of how they should be met, beyond that
supplied by mother wit. In consequence, there were many stumbles and
many falls. But a sound bank, in the early days, was hardly any the
worse for stopping payment. At one time, as we have seen, all the banks
stopped payment, the only result being a temporary excitement on the
part of the commonalty, arising from the inconvenience of not getting
change for £1 notes. During another crisis, almost all the Edinburgh
private banks were swept away; but those who remained gained in credit
and in experience. These were the blows that moulded the system, and it
is surprising that the total loss sustained by creditors from the
failure of banks in Scotland is quite insignificant.

But, it may be said, the
Scottish banks have, within the period of what may fairly be considered
the matured system, supplied two instances of gross failure, the later
of which is probably the most disgraceful which any thoroughly
consolidated country has experienced. It must be admitted that this is
so, and that the three great banking disasters of Scotland—the Ayr Bank,
the Western Bank, and the City of Glasgow Bank — show an appalling
increase in ratio of calamity. And it is not sufficient answer to say
that these events were the result of departure from the general system.
They certainly were so—nay, it was the ignoring of the principles and
practice which experience had established as the general rule that
produced the ruin of these banks. But they cannot be excluded from the
general estimate of Scottish banking. Indeed, it may be said that in no
other country than Scotland could such a case as that of the City of
Glasgow Bank have happened. The excellence of the banking system had
commended itself to the Scottish public in a manner not elsewhere
experienced in regard to private companies, and it was this blind trust
that rendered the disaster possible. The only answer to the accusation
is, that men fail in their strongest point. The lessons to be derived
from these experiences are, however, of more moment than accounting for
them. These have been preached, rightly and wrongly, to such an extent,
and acted on so wholesomely, that it only requires vigilant interest on
the part of proprietors, depositors, and the public, to avert such
events in the future. And in regard to such vigilance, nothing is of
more importance than insisting on the continued observance of the
principles and practice which have proved so successful, and resisting
new departures such as, under the specious assertion of a necessity for
extended facilities, have three times brought grievous disaster on the
nation.

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